Second Mortgage

Home equity loans that added to the outstanding mortgages can provide funds up to the total value of the property securing the loan.

These high amounts make home equity loans the best source for funds to undertake a home improvement project that you’ll find on the loan market. Home equity loans work in a rather simple way, they use part of the remaining value of a property to secure another loan (apart from the mortgage) thus obtaining finance with very competitive terms compared to unsecured personal loans.

Also, this provides high loan amounts that can easily fund any home improvement project.

Equity is the difference between the value of a property and the outstanding debt that this property guarantees. For example: if you have a property worth $120,000 in the real estate market and you owe $60,000 on your mortgage balance, you’ve got $60,000 of remaining equity and you can obtain a loan by securing the money borrowed with that remaining equity.

100% Financing?

Usually, the amount of money you can request on a home equity loan is limited. The combination of your home loan and your home equity loan can’t reach up more than 85% of the home market value. In the above example, you couldn’t be able to obtain a home equity loan for more than $42,000 due to this 85% limit (a total of $102,000).

However, there are lenders offering 100% financing on your home equity provided that you destine the money to make home improvements. These home improvement loans provide further financing because the 85% limit is eliminated on condition that the money is used solely for home improvement projects. You may wonder how this can be possible and what the catch is:

The answer is simple, these lenders analyze your home improvement project and see how it will raise the value of your property. Thus, by lending to you the money to undertake a home improvement project they know exactly that they are lending money for you to raise the value of the property used as collateral for protecting their investment and they’ll have an idea of the percentage of value increased.

Thus, though it may be 100% financing for you, it is actually not 100% for them but a lower percentage that can sometimes be even lower than 85%. Nevertheless, with this procedure, you can obtain all the money you want for your home improvement project in the form of a home equity loan or a home equity line of credit but you’ll be restricted as regards to the purpose you can give to the money you borrow since your home improvement project needs to be approved by the bank or financial institution.